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27-12-2020
Business

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Long Life Floors is expected to pay an annual dividend of $7 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5 years from today

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Parrain Parrain

28-12-2020

Answer: $60.62

Explanation:

Using the Gordon Growth model;

Value = Next dividend / (Required return - growth rate)

Next dividend in 5th year will be dividend in 6th year;

= 7 * (1 + 2%)⁶

= $7.88

Value₅ = 7.88 / (15% - 2%)

= $60.62

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